Poor business sentiment is harming economic growth in SA

13 September 2019Consultancy.co.za

Analysing the latest data from the Bureau for Economic Research (BER), PwC Strategy& economists have stressed the urgency of injecting optimism in the business sentiment across South Africa. The dampened spirit in the country is hindering the success of government plans for economic growth.

Latest data from the BER has revealed that confidence among South Africa’s business environment as at its lowest point in two decades. In other words, business sentiment in South Africa was better during the Global Financial Crisis of 2008 than it is in the current economic climate.

The BER’s surveyed a number of economic segments, but received an overwhelmingly pessimistic response from each of them. South Africa’s economy has stagnated in recent years, characterised by negligent economic growth, rampant unemployment and an increasing incidence of corruption.

Leadership in the country has been focusing on foreign investment as a ticket to economic recovery, although progress on this front has fallen well short of expectations. The current administration seeks to draw $100 billion in foreign investment by 2024, although dampened consumer sentiment is only deterring investors from entering the market.

The National Treasury in South Africa released an economic policy paper in August, which laid out a number of possible structural economic reforms that would help break the shackles and drive economic growth up by more than 2%. Analysts complimented the paper, but labour unions condemned it.

According to Lullu Krugel and Christies Viljoen, who are both economists at PwC Strategy& Africa, the negative reception of the policy paper has done no good for business sentiment in the country. “Conflicts within the governing alliance and the state’s inability to implement economic policy plans clearly had only adverse effects on business sentiment,” write the economists.

“South Africa desperately needs to resolve this quicksand situation. Low business sentiment – current levels seem too weak to refer to as ‘confidence’ – is holding back the investment required to get the country’s economy to a level that exceeds population growth. For the past four years, real economic growth has been below the growth rate of the population, resulting in a decreasing size of the economy pie associated with every resident. This is likely to continue for a fifth straight year in 2019. The structural changes proposed by the National Treasury paper could help resuscitate the local economy and business sentiment along with it. However, whether it will gain traction is seriously in jeopardy. “